Plainly put – A collateral mortgage is one way of registering your mortgage on title. Usually this type of registration is used by banks and credit unions. Most monoline lenders on the other hand will rarely register your mortgage as a collateral charge
What is a collateral charge? Great question! It is an all-indebtedness charge that allows you/the mortgagor access to the equity in your home over up to the total charge registered. Mortgage lingo I know, my apologies. What this means is that you may have access to a home equity line of credit and/or a readvanceable mortgage or increase your mortgage without having to re-register it. This is a huge benefit to the mortgagor in some cases because re-registering your mortgage can cost up to a thousand dollars in legal fees.
However, there are some point you should consider if you’re thinking about a collateral mortgage.
- If your hoping to switch your mortgage over to a different lender in hopes of a lower interest rate at or before renewal, the other lender may not accept the transfer of your specific collateral mortgage. This means you’ll need to pay additional fees to discharge the mortgage at the Lawyer or Notary in order to register a new one.
- Collateral mortgages reduce the flexibility you have to get a second mortgage, obtain a home equity line of credit from a different institution, or use another financial instrument on your home. Why? Because your collateral mortgage is often registered for total amount of your property.
- Most Important point to consider – because it is an “all indebtedness” mortgage – it brings into account all other debts held by that Bank/lender into an umbrella registered against your home. This means that any credit card debt you may have, car loans, or debt approved at your mortgage’s institution can be held against your home even if you’re up to date with your mortgage payments.
To review – collateral mortgages gives the mortgagor the flexibility to combine multiple mortgage products under one mortgage product while also tying you up with that one lender. While this type of mortgage can be a great tool when used properly, it does have its negatives. If you have any questions feel free to contact me. I’m here to help.
Have a great day.